Phantom of the Pits - Your Trade Program

Phantom indicated that it
was time to conclude the talk forum part of Phantom's Gift and move
to the sidelines in order to complete the first book of his give
back project. There were a few hesitations on the forum but only
because of not knowing the further plans that Phantom intends to
complete.
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The project has been very
successful and well received which pleased Phantom and exceeded his
projections. Several comments were made to the point of wishing for
a never ending dialogue between Phantom and the participants on the
forum. Phantom felt it was time for him to stand on the sidelines
in order to see the results of his efforts.
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Trading is an extremely
difficult business and research is always a demanding part of each
trading day. While Phantom needs to complete a few other projects,
none are as important to him as the efforts he has given on seeing
the small trader compete successfully with the big
traders.
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There are so many turns and
new frontiers in trading and only a few have been covered up to
this point. For a trader to know what is required in order to stay
in the trading game for a long period of time is most important and
above other aspects. But without the other aspects such as a
trading plan and a system to generate trades, trading can not be
completed properly.
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There are so many trading
plans and systems and while one trader may be able to be successful
with a same system, another trader may have failed to master the
same system due to different entry and exit points. It can be a
very fine line.
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With Phantom's rules it is
a more even call with the same system. This is what Phantom
intended to see in presenting his trading rules. To more or less
level the playing field and improve the standing somewhat due to
the quicker actions required by the rules than actions of the deep
pocket traders is an improvement for the small trader.
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The small trader can not
survive unless equity is preserved first and foremost in trading.
It can be done but must be done with the skill required. This
requires following closely the rules and knowing oneself. It is
difficult to teach this method without a trader's own experience
pointing the need for the rules which require the trader to run
like a coward in order to survive in the long run.
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It isn't too much different
from a professional basketball game in that if you missed your
shot, you are running in order to defend at the other end of the
court. You know that you will have another chance if you can
continue to keep the opposing team (the market) from running up the
score on you.
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It must be instinct and
practice is required in order to make it a reaction trained by your
practice. Knowing the rules is just not enough. No one tells a good
trader to make a trade, as it must by your own thought in order to
properly follow the correct rules. Same at getting out of positions
which don't prove to be correct positions.
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We proceed with a trading
plan after we feel that our behavior and reaction to market
conditions is in our total control. As long as we are prepared for
any outcome and adapt our behavior to all possibilities can we
start to follow a good system.
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Phantom wanted to give the
important step beyond the critical starting rules in order to give
traders a better outlook in their trading. We include some of his
writings over the years of his trading on such things as how to
look for an entry and improve the edge upon entry. We shall look at
ideas on system entry and trade signals.
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All traders feel there is a
system, which is best. The best system is going to fail at one time
or another and that is why we need Phantom's rules. Bad systems can
turn some good trades and be correct at opportune times. Many of
these systems have drawbacks.
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Many systems assume that
you will have the funds to cover what the back testing indicates is
required to margin your trades. Phantom has studied these
assumptions and has his own ideas as to the difficulty with using
back testing as the criteria of system creation.
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Often system traders fail
to see the entire requirement when emotion takes a seat on the team
bench. This absolutely will defeat the system. What system is best?
Phantom has thoughts on which system you might use to better
survive. Which ones are they?
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Most of the book has
required a couple of readings in order to interpret a lot of what
Phantom has indicated in his insight. It was by no accident that
his insight prompts your own questions and searching. You are with
us so far. That was the most important step.
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You are doing your own
thinking. From here forward it will be a little easier for you. It
is discouraging to have a market take funds away from you and your
family. The more soul searching you do about what the market is
waiting to show you the better your outcome will be in using the
rules properly.
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Take a break, have a
favorite drink or refreshment and get your note pad ready to make
your own notes. You are going to draw your trade plan according to
your goals. Phantom will have some good suggestions about your
trade plan.
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Your trade plan will give
you your entry signals. Phantom's rules will give you your exits
and drawdown protection. What else is there? If you have the rules
for protecting your funds in a losing game and you have a good plan
for putting on good trades which you exit if not proven good
trades, you have it pretty well covered.
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It is easier to look greed
and fear in the face with the proper frame of mind. You have to be
your own motivation expert in your trading. The motivation must be
tilted toward the rewards of keeping big losses out of your
account. Not just today but every day you trade. You must look at a
big loss the same as you would a personal bad habit. It is
undesirable to ever have a big loss show on your
statement.
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Phantom is going to look at
your statements. If he sees big losses in your account, you will
have to answer to him personally. It is his business when you have
a big loss because he is going to see it in your face. Your tie
will be too tight, your face red and you will have a miserable day.
POP wants better treatment for you in your trading. He cares and
you must care each minute your position is against you.
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Can you make that good
fortune in trading? Only if you lose small and never let turn
around markets take you for a ride. It is your question to answer.
Phantom has no one to answer to and nothing to prove to anyone. You
must prove to yourself. Let your performance speak for you. It
should not take you more than six weeks to know for
sure.
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You can expect to be on
your way not because you made some money but because you don't let
much money get away from you. We have known some big winners and
winning was easy for them. Only thing they forgot or never knew was
that though it isn't difficult to make money it is difficult to
keep it. There is only one way to keep it.
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Ok if it isn't difficult to
make money, why don't you understand before you make money that you
must keep all money at whatever cost you can create with the word
small. The biggest loser I ever saw was a trader who had a few
outstanding months of trading in a trending market. You may have
heard of the Hunt silver slide. It can happen to anyone who does
not respect the reward of a SMALL LOSS! YOU MUST see the reward of
a small loss. Don't let it be your forgotten advice.
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Let's look at some of
Phantom's writings and his updated notes as to his ideas on your
trading plan.
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ALS: Phantom, I'll
transcribe these into our book and have you verify the points,
which I don't fully understand. Though I have known you my entire
trading career I still don't know everything about you. When you
put thoughts on paper it seems different for me than when we talked
answers back and forth.
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I am more like the readers
now, as I must read what you wrote instead of what I wrote from
your spoken insight. Do you think this will make it easier for the
readers by doing it this way?
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Phantom of the Pits: You
bet, Art! I am exact in my thought when it comes to making a
trading plan for our traders. You go ahead and put it in the
book.
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POP's (writings): In every
trading plan there must be an element, which gives you the edge. It
is that edge which can change the outcome of your trading career.
In the pits it is the edge the locals get for putting on the trade
which is their advantage that allows them to trade for a longer
term than if they had not gotten the edge.
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My rules are not the plan
but the rules are a must in order to have a plan to work. To me the
rules are the most important part of giving me the confidence I
need to know that I can and will survive in my trading. Survival is
the most important point of any plan. If I know I can survive then
my plan can be much easier to design.
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While my plan may seem
advanced to others, there are only three ways for a market to go. I
know you are going to ask what is the third but none the less
believe me! There is a situation coming up in a few days and every
trader off the trade floor is not thinking the trade. My writing
points out a third way the market can move
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I didn't want to put this
on the talk forum because I didn't want to confuse new traders with
my thoughts on this point. I am not going to ask you to interpret
what I am trying to say. I am going to tell you what I mean
here.
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A good trading plan must
have the third way a market can move included in the plan. Is the
third way a market can move is the surprise side move. No not
exactly!
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I know of a couple of funds
that have been proven winners due to this one input of their plan.
Sure there were other criteria too.
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Oh you say but you are the
great trend follower of all time. What is wrong with throwing in
the towel early in a trend? I'll tell you what is wrong! Not
throwing in the towel early is what is wrong. Big losses are the
reward when you have convictions in a trend beyond support or
resistance. You got it, the market trips and you must take it. You
need not only to take the profit but also to head the other way.
You need to make criteria for this situation in your trade
program.
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In your trade plan we now
have two situations which can give you the edge. The first is the
surprise side and the second is the third way a market can move.
The surprise side is an event, which takes place during the day,
and unfortunately seldom allows the public to benefit from on
entries. Mainly because they are already the other way when it
takes place.
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The public seldom reverses
their position because they seldom get out at the right place in
the first place. You must use this knowledge to your advantage and
not be caught up in the same situation.
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I don't care how bullish or
bearish a position you have established appears to be, there is a
place in every day when it is going to be right to be out of that
position. The odds are that you won't hit that place most days.
You'll find that it seldom happens when expected in trends. That is
why you must have that exit planned during every day. You must be
prepared within your trade plan to use the exit if
needed.
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How do we put this into our
plan? If you are using Point and Figure charts, you can often see
the 45-degree line of support and resistance. A good trend will
give you several attempts at the support and resistance lines.
After several attempts a reversal day will break through the line.
At that point you will have stops and the stops can generate more
orders coming into the pits. As the price moves through it will
generate more orders to exit.
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You don't want to stay
around long after the first move through the line. Even if it does
reverse back again, you usually will have a good clue that you did
the right thing by offsetting as consolidation starts to take place
if the line holds.
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Some of your biggest trends
and moves come from the breaking of support and resistance of a
strong established trend. Put these criteria in your trade program.
Even if you were to only trade this edge, you would be making the
best moves of your program.
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Let me qualify this for you
a little more. This is the third way a market can move. The market
must have moved in the direction of the trend and then broken
support or resistance. It is not the same as the surprise side
moves.
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The surprise side move is
different in that it can be caused by a reversal of a market after
going the way of a report and then failing. The surprise side also
can be when opinion is one way and the market has no more traders
to re-enforce the opinion with positions so the market fades the
other way.
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You must have a surprise
side plan in your trade program at all times also. The surprise
side over the years of research for me has always been the opposite
way the market opened in all markets except one. It is up to you to
search that one market out. It tells you something about taking a
diversified trade plan by spreading your trades over several
contracts. If you trade five different futures and you see that
only one can be the one, which I expect to be a surprise side in
the direction of the open, you have the odds in your favor in your
thinking.
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I don't want to mislead you
on the surprise side. What I mean is that if the market opens
higher and closes higher for the day but lower than the open, it is
what I call the surprise side. It is the same on a lower open and
it closes higher than the open then it is the surprise side. Go do
your research on the open and closes but not in respect to higher
or lower on the close but in reference to the open only.
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The big money is made on
the surprise side. Why do you think that is? It is because the
professionals are not only getting out before most but also going
the other way when the rest of the trade starts getting out on
stops.
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You should make yourself a
data chart and research this knowledge to confirm it before you put
it in your trade program knowledge.
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First the market opens and
last the market closes in reference to the open. This is your data
research required for this input. What do you find over the last
six months? What do you find in a trend and when not in a trend?
Chart it or data scale the information and use that in your
program.
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You see opening prices are
good indicators of where the market will close in relation to the
open in certain market conditions. It seems to have certain
creditability due to the way the market information is reported in
newspapers to off floor traders. Some traders only get the open,
high, low and close most of the time.
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Opening prices are bad news
most of the time. There are times when opens and gaps are with high
creditability in predicting the close direction. Learn them from
your technical research and use them in your trade
program.
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During a surprise open
there is little you can do if you are already the wrong way but to
protect your position. If you are right by mistake of the surprise
open, consider yourself lucky but listen to your plan just the
same. If your program said to offset after a higher open and you
get a surprise higher open, do it and then re-enter your trade when
you have the criteria met of your program met.
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Many times an extreme open
will give you support at the opening range as the gap indicates to
the professional trader an invitation to continue to move in the
same direction as new orders to follow continue to come into the
market in waves. You must consider this phenomenon in your trading
plan and input it carefully in your program.
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It is just as important to
not make a mistake about good gaps on the open. Watch them and
research what happens with them. There will be a two-sided market
in those situations but only because there are always many traders
willing to take a profit. Use that as we have said in the past to
your advantage. These profit takers are your friends in these
situations.
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Gaps are certainly a study
needed since they are your opening indicators and can change most
trading plans immediately. Use the information you gather on gaps
to implement good trading plans with the gaps being a possibility
for each day.
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Getting back to the third
way a market can move is not as many think in picking tops and
bottoms. It is not picking tops and bottoms. Third way moves are
your acknowledgments of what the market is telling you about the
existing trend. It is finding lack of continuance and is going to
reverse somewhere along the trend. It is usually after the support
or resistance of the trend has been flirted with and broken. Be
aware of your support and resistance points in your plan each
day.
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Always take into
consideration the possibility that the third way moves in trends
are of the most powerful moves in markets. If you have missed the
existing trend for some reason you can always be ready for the
third way move out of existing trends. Don't ever force the trade
until the resistance or support has been violated depending on
which way the trend established is moving. Have your points in your
daily trading plan.
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Most systems will not give
you criteria other than expected entry points and exit points. Thus
must be further establishment of your trading plan. It is good to
have a system, which you can have confidence in, but you must
complete the total trade plan in addition to it.
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Seldom is a trade system a
complete trade plan but there are some which are. On selection of a
system to trade I feel it is best to have an additional trading
plan along with the system. Mainly I feel this way because there
are times when your system can generate a period of losing trades.
You must be able to filter as well as protect with my rules when
this happens.
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Look for a system, which
allows you the opportunity to complete a trading plan along with
the system. You should be able to find the needed criteria to allow
the dual situation in your trading.
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Many systems writers say
that you must follow them exactly at all times. What happens when
an unpredictable event total changes a market from technical to
chaos? How can you continue to follow a system on that event? This
is why I like a trading program in addition to the system. And
above all else the rules of survival take priority over
all.
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So we are saying that the
best system is one which allows you the best lateral movement in
your determination of trading throughout the day. We are also
saying that rules of survival are much more important than the
system. But without the system you will have no positions
established.
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Many call money management
the same as we call the survival rules. Don't rule out either
explanation of survival. You can only succeed if you trade in the
long run. This is not the same as saying long term trades. Long run
trading allows you the opportunity to be around for good moves in
both the present and the future. If you trade just for today you
had better just buy a lottery ticket.
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When you select a system
there are drawbacks to each one. Look for a system that back tests
data currently. What I mean by this is that it must be current in
the last six months or so. What good is the system if it takes the
past 50 years into consideration but not the current six months,
which reflect our current market conditions best. I like to see a
system back tested in two stages, one for lots of data and one for
the past six month data.
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If you design your own
system compare both sets of data from the long term and six-month
data. If they conflict you must refine the system somewhat to a
better signal generator. If you can't refine it better then use
both sets of signals and throw them out when they conflict. This
can be a good filter for you in your trade signals. Who is to say
that times don't change in cycles just as do market swings? Use it
to your advantage.
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More times than not when
you have conflicting signals you will be better to disregard them.
Your powerful moves come when all your signals tend to agree. Don't
make the mistake of having too many indicators as the more you have
the wider the road must be and the more difficult it will be for
you and you may over stay the market because you entered too
late.
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Too many indicators will
cause you to enter too late many times. This also leads to staying
in beyond the proper time. Most systems will not give you a good
intra-day reversal signal, as they tend to be more day to day
signals. You need your trade program to flag you on third way moves
in trends at reversals.
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Don't be a hero and don't
use a system, which requires you to be a hero by holding on the
extra day. If you do you will find yourself missing the reversal
signals and catching the bounce instead. This will change your
outcome and sometimes invalidate your ability for the particular
system you chose. This is another good reason you should have a
trade plan along with the system chosen.
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I have covered the most
important aspects of what you should include in your trade plan but
this is now way complete. There are unique inputs from each market
you want in your system like seasonal tendency, volume, open
interest and other factors which are unique to each future contract
you trade.
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Your plan can be generic
with minor specifics of each future. Keep in mind that you still
need a fairly simple program. The system is what will be
complicated. It may include several moving averages or other
indicators. Try to not use too many lagging indicators. You are
talking about future and not past. Stay closer to leading and
forecasting in your system choice. The reason I say this is because
quick and extreme moves take place in trading.
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What kind of signals do you
want to trade? Mostly you should use a trade plan to keep you from
chasing markets. Your system may require you to buy strength and
sell weakness or buy the open. I don't like this type of trading
anymore. You must have a filter but keep execution as part of the
trade plan. You can have two possibilities set as long as one of
them guarantees that you do indeed follow your signals. It will
only change and moderate your entry places.
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A system can not know what
the market is doing after entry. Your trade plan can. That is your
edge. It is not second-guessing but intelligent gathering upon
entry. Systems may be giving you a signal again and again. Does
this mean to add at every signal? Your trade plan must address
that. I have liked the three add on points. Use your own
ideas.
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I hope this helps you with
your trade plan. The ideas are unlimited but you must narrow them
down and keep your plan relative simple.
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